Supply chain management and advanced planing concepts models softwarwe and casse study

Supply Chain Management
and Advanced Planning


Hartmut Stadtler ´ Christoph Kilger
(Eds.)

Supply Chain Management
and Advanced Planning
Concepts, Models, Software and Case Studies
Third Edition
With 173 Figures and 56 Tables

12


Professor Dr. Hartmut Stadtler
FG Produktion und Supply Chain Management
FB Rechts- und Wirtschaftswissenschaften
TU Darmstadt
Hochschulstraûe 1
64289 Darmstadt
Germany

Dr. Christoph Kilger
j&m Management Consulting AG
Kaiserringforum
Willy-Brandt-Platz 5
68161 Mannheim
Germany

Cataloging-in-Publication Data
Library of Congress Control Number: 2004110194

ISBN 3-540-22065-8 Springer Berlin Heidelberg New York
ISBN 3-540-43450-X 2nd edition Springer Berlin Heidelberg New York

This work is subject to copyright. All rights are reserved, whether the whole or part of the
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the German Copyright Law.
Springer is a part of Springer Science+Business Media
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° Springer Berlin ´ Heidelberg 2000, 2002, 2005
Printed in Germany
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Preface
Hartmut Stadtler1 , Christoph Kilger2

1
2

Darmstadt University of Technology, Department of Production & Supply
Chain Management, Hochschulstraße 1, 64289 Darmstadt, Germany
j & m Management Consulting AG, Kaiserringforum, Willy-Brandt-Platz 5,
68161 Mannheim, Germany

Preface to the Third Edition
Four years have passed since the first edition of our book – and still its readership is growing rapidly: You may even be able to buy a Chinese translation
soon!
The field of Supply Chain Management (SCM) and Advanced Planning
has evolved tremendously since the first edition was published in 2000. SCM
concepts have conquered industry – most industry firms appointed supply
chain managers and are “managing their supply chain”. Impressive improvements have resulted from the application of SCM concepts and the implementation of Advanced Planning Systems (APS). However, in the last years
many SCM projects and APS implementations failed or at least did not fully
meet expectations. Many firms are just “floating with the current” and are
applying SCM concepts without considering all aspects and fully understanding the preconditions and consequences. This book provides comprehensive
insights into the fundamentals of SCM and APS and practical guidance for
their application.
What makes this book different from others in the field? Firstly, the material presented is based on our experiences gained by actually using and
implementing APS. Furthermore, we have tried to extract the essence from
three leading APS and to generalize the results – instead of merely reporting
what is possible in a single APS. Secondly, this book is not just a collection
of papers from researchers who have come together at a single conference and
published the resultant conference proceedings. Instead we have structured
the area of SCM and Advanced Planning into those topics relevant for turning
APS successfully into practice. Then we have asked prominent researchers,
experienced consultants and practitioners from large industry firms involved
in SCM to join our group of authors. As a result, this edition (product) should

be the most valuable source of knowledge for our readers (customers).
You may have observed that creating our team of authors has much in
common with forming a supply chain in industrial practice. This story can
be expanded even further: Several authors are also partners (contributors) in
other supply chains (author groups). It is the task of the steering committee


VI

Hartmut Stadtler, Christoph Kilger

(editors) to make our supply chain work and make it profitable for every
partner. This model not only worked for the lifetime of a product’s life cycle
but also twice for its relaunch. We hope that our supply chain will stick
together for some time in the future for the best of our customers – YOU!
What is new in this third edition, apart from the usual update of chapters?
• A section on strategic issues in SCM has been added as a subsection of
Chap. 1.
• The contents of Chaps. 2 and 3 are restructured with a greater emphasis
on Supply Chain Analysis.
• Latest issues and recommendations in Strategic Network Planning now
have been prepared by two authors (Chap. 6).
• A new chapter has been added showing how to generate production and
purchasing orders for uncritical items by utilizing the well-known MRP
logic (Chap. 11).
• The chapters on the Definition of a Supply Chain Project (Chap. 15) and
the Selection Process of an APS (Chap. 16) have been rewritten in light
of new experiences and research results.
• Demand Fulfilment and ATP (Chap. 9) now is based on several APS and
thus presents our findings in a more generalized form.

• There are two new case studies, one from the pharmaceutical industry
(Chap. 19) and one from the chemical industry (Chap. 22). Also, all case
studies now follow a common structure.
This edition would not have been possible without the advice from industry partners and software vendors. Many thanks to all of them for their most
valuable help. This is also the last edtion, where Jens Rohde has administered
all the papers and prepared the files to be sent to the publisher. Thank you
very much, Jens, for this great and perfect service and all the best for the
future!

Hartmut Stadtler
Christoph Kilger

Darmstadt, April 2004
Mannheim, April 2004


Preface

VII

Preface to the Second Edition
Success stimulates!
This also holds true when the first edition of a book is sold out quickly. So,
we have created this second edition of our book with great enthusiasm.
Attentive readers of the first edition will have realized an obvious gap
between the scope of Supply Chain Management (SCM), namely integrating
legally separated companies along the supply chain and the focus of Advanced Planning Systems (APS) which, due to the principles of hierarchical
planning, are best suited for coordinating intra-organizational flows. Now,
collaborative planning is a new feature of APS which aims at bridging this
gap. Consequently, this new topic is the most apparent addition to the second

edition (Chap. 14).
But there are also many other additions which are the result of greater
experience of the authors – both in industrial practice and research – as well
as latest APS software developments. Examples of new materials included
are:
• The different types of inventories and its analysis are presented in Chap. 2.
• The description of the SCOR-model and the supply chain typology have
been enlarged and now form a separate chapter (Chap. 3).
• There is now a comparison of planning tasks and planning concepts for
the consumer goods and computer assembly industry (Chap. 4).
• New developments in distribution and transport planning have been added
(Chap. 12).
• Enterprise Application Integration is explained in Chap. 13.
• Chapter 17 now presents implementation issues of APS in greater detail.
• Some case studies have been updated and extended (Part IV).
• Rules of thumb have been introduced to allow users and consultants to
better estimate and control computational times for solving their decision
models (Part VI).
Like in the first edition we have concentrated on the three most popular APS because we have realized that keeping up-to-date with its latest
developments is a very time consuming and challenging task.
SCM continues to be a top management theme, thus we expect our readers
to profit from this update and wish them great success when implementing
their SCM solution.


VIII

Hartmut Stadtler, Christoph Kilger

Many thanks to all who contributed to the first and second edition!

Hartmut Stadtler
Christoph Kilger

Darmstadt, January 2002
Mannheim, January 2002

Preface to the First Edition
During the late 80s and throughout the 90s information technology changed
modern manufacturing organizations dramatically. Enterprise Resource Planning (ERP) systems became the major backbone technology for nearly every type of transaction. Customer orders, purchase orders, receipts, invoices
etc. are maintained and processed by ERP systems provided by software
vendors – like Baan, J. D. Edwards, Oracle, SAP AG and many more. ERP
systems integrate many processes, even those that span multiple functional
areas in an organization, and provide a consistent database for corporate
wide data. By that ERP systems help to integrate internal processes in an
organization.
Mid of the 90s it became apparent that focussing on the integration of
internal processes alone does not lead to a drastic improvement of business
performance. While ERP systems are supporting the standard business workflows, the biggest impact on business performance is created by exceptions
and variability, e. g. customers order more than expected, suppliers deliver
later than promised, production capacity is reduced by an unforeseen breakdown of equipment etc. The correct reaction to exceptions like these can save
a lot of money and increase the service level and will help to improve sales
and profits. Furthermore, state-of-the-art planning procedures – for planning
sales, internal operations and supply from the vendors well in advance –
reduce the amount of exceptional situations, helping to keep business in a
standard mode of operation and turning out to be more profitable than constantly dealing with exceptional situations.
This functionality – powerful planning procedures and methodologies as
well as quick reactions to exceptions and variability – is provided by Advanced
Planning Systems. An Advanced Planning System (APS) exploits the consistent database and integrated standard workflows provided by ERP systems

Preface

IX

to leverage high velocity in industry. Due to these recent developments, software vendors of APS boost a major breakthrough in enterprise wide planning
and even collaborative planning between the partners along a supply chain.
Do APS hold the promises? What are the concepts underlying these new
planning systems? How do APS and ERP systems interact, and how do APS
supplement ERP systems? What are the current limits of APS and what is
required to introduce an APS in a manufacturing organization successfully?
These were the questions we asked ourselves when we started our project
on “Supply Chain Management and Advanced Planning” in summer 1998.
Since we realized that there were many more interested in this new challenging field, the idea of publishing this book was born.
This book is the result of collaborative work done by members of four
consultancy companies – aconis, j & m Management Consulting, KPMG and
PRTM – and three universities – University of Augsburg, Darmstadt University of Technology and Georgia Institute of Technology. Our experiences stem
from insights gained by utilizing, testing and implementing several modules
of APS from i2 Technologies, J. D. Edwards and SAP AG. Tests and evaluations of modules have been conducted within several projects including
students conducting their final thesis.
On the other hand, some members of the working group have been (and
still are) involved in actual APS implementation projects in several European
enterprises. The real-world experience gained from these projects has been
merged with the results from the internal evaluation projects and provided
valuable insights into the current performance of APS as well as guidelines
how to setup and conduct an APS implementation project.
Since summer 1998 our group has spent much time gaining insights into
this new fascinating field, working closely together with colleagues from academic research, vendors of APS and customers of APS vendors. However,
we are aware of the fact that APS vendors are constantly improving their
systems, that new areas come into focus – like supplier collaboration, Internet fulfilment, customer relationship management – and that, because of the

speed of developments, a final documentation will not be possible. Hence,
we decided to publish this book as a report on the current state of APS,
based on our current knowledge and findings, covering the major principles
and concepts underlying state-of-the-art APS.
This book will be a valuable source for managers and consultants alike,
initiating and conducting projects aiming at introducing an APS in industry.
Furthermore, it will help actual users of an APS to understand and broaden
their view of how an APS really works. Also, students attending postgraduate
courses in Supply Chain Management and related fields will profit from the
material provided.
Many people have contributed to this book. In fact, it is a “Joint Venture”
of the academic world and consultancy firms, both being at the forefront of
APS technology. Hans K¨
uhn gave valuable input to Chap. 2, especially to the


X

Hartmut Stadtler, Christoph Kilger

section on the SCOR-model. Daniel Fischer was involved in the writing of
Chap. 9 on Demand Fulfilment and ATP. The ideas of the KPI profile and the
Enabler-KPI-Value Network, described in Chap. 15, were strongly influenced
by many discussions with Dr. Rupert Deger. Dr. Hans-Christian Humprecht
and Christian Manß were so kind as to review our view of software modules
of APS (Chap. 18). Dr. Uli Kalex was the main contributor to the design of
the project solutions, on which the computer assembly case study (Chap. 21)
and the semiconductor case study (Chap. 23) are based. Marja Blomqvist,
Dr. Susanne Gr¨
oner, Bindu Kochugovindan, Helle Skott and Heinz Korbelius read parts of the book and helped to improve the style and contents.

Furthermore, we profited a lot from several unnamed students who prepared
their master thesis in the area of APS – most of them now being employed by
companies implementing APS. Last but not least, we would like to mention
Ulrich H¨
ofling as well as the authors Jens Rohde and Christopher S¨
urie who
took care of assembling the 24 chapters and preparing the index in a tireless
effort throughout this project.
Many thanks to all!

We wish our readers a profitable reading and all the best for applying Advanced Planning Systems in practice successfully.

Hartmut Stadtler
Christoph Kilger

Darmstadt, June 2000
Mannheim, June 2000


Contents

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hartmut Stadtler, Christoph Kilger

V

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hartmut Stadtler
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1
5

Part I. Basics of Supply Chain Management
1 Supply Chain Management – An Overview . . . . . . . . . . . . . . . . 9
Hartmut Stadtler
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.2 Building Blocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.3 Origins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
2 Supply Chain Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christopher S¨
urie, Michael Wagner
2.1 Motivation and Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.2 Process Modelling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.3 Performance Measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4 Inventory Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37

3 Types of Supply Chains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Herbert Meyr, Hartmut Stadtler
3.1 Motivation and Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.2 Functional Attributes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.3 Structural Attributes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.4 Example for the Consumer Goods Industry . . . . . . . . . . . . . . . . . . . .
3.5 Example for Computer Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

65

37
39
49
56
62

65
66
69
71
76
80

4 Advanced Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Bernhard Fleischmann, Herbert Meyr, Michael Wagner
4.1 What is Planning? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
4.2 Planning Tasks Along the Supply Chain . . . . . . . . . . . . . . . . . . . . . . 86
4.3 Examples of Type-Specific Planning Tasks and Planning Concepts 92
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106


XII

Contents

Part II. Concepts of Advanced Planning Systems
5 Structure of Advanced Planning Systems . . . . . . . . . . . . . . . . . . 109
Herbert Meyr, Michael Wagner, Jens Rohde

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
6 Strategic Network Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mark Goetschalckx, Bernhard Fleischmann
6.1 Components of the Strategic Network Design Problem . . . . . . . . . .
6.2 Review of Models in the Literature . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.3 Modelling Strategic Supply Chain Design . . . . . . . . . . . . . . . . . . . . .
6.4 SNP Modules in Advanced Planning Systems . . . . . . . . . . . . . . . . . .
6.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

117

7 Demand Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael Wagner
7.1 A Demand Planning Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.2 Statistical Forecasting Techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.3 Incorporation of Judgmental Factors . . . . . . . . . . . . . . . . . . . . . . . . .
7.4 Additional Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

139

8 Master Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jens Rohde, Michael Wagner
8.1 The Decision Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.2 Model Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.3 Generating a Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

159

9 Demand Fulfilment and ATP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christoph Kilger, Lorenz Schneeweiss
9.1 Available-to-Promise (ATP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.2 Allocated ATP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.3 Order Promising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

179

10 Production Planning and Scheduling . . . . . . . . . . . . . . . . . . . . .
Hartmut Stadtler
10.1 Description of the Decision Situation . . . . . . . . . . . . . . . . . . . . . . . . .
10.2 How to Proceed from a Model to a Production Schedule . . . . . . . .
10.3 Model Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.4 Updating Production Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.5 Number of Planning Levels and Limitations . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

197

121
127
128
133
134
136

139
143

148
150
157

160
166
174
177

180
186
191
195

197
198
201
207
209
213


Contents

XIII

11 Purchasing and Material Requirements Planning . . . . . . . . .
Hartmut Stadtler
11.1 Basics of Material Requirements Planning . . . . . . . . . . . . . . . . . . . . .
11.2 Generation and Timing of Uncritical Orders . . . . . . . . . . . . . . . . . . .

11.3 Quantity Discounts and Supplier Selection . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

215

12 Distribution and Transport Planning . . . . . . . . . . . . . . . . . . . . .
Bernhard Fleischmann
12.1 Planning Situations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.2 Models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

229

13 Coordination and Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jens Rohde
13.1 Coordination of APS Modules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.2 Integration of APS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.3 Supply Chain Event Management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

245

14 Collaborative Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christoph Kilger, Boris Reuter
14.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.2 Types of Collaborations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.3 A Generic Collaboration Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.4 Software Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

259

215
217
222
226

229
235
243

245
248
256
257

260
262
270
276
278

Part III. Implementing Advanced Planning Systems
15 The Definition of a Supply Chain Project . . . . . . . . . . . . . . . .
Christoph Kilger
15.1 Supply Chain Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.2 Supply Chain Potential Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15.3 Project Roadmap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

281

16 The Selection Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christoph Kilger, Ulrich Wetterauer
16.1 Creation of a Short List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.2 APS Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.3 Implementation and Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16.4 Post-implementation Effort and Support Model . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

303

283
291
297
300

304
309
311
315
316


XIV

Contents

17 The Implementation Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ulrich Wetterauer, Herbert Meyr

17.1 The APS Implementation Project . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17.2 Modelling Phases of an APS-Project . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

317
317
332
337

Part IV. Actual APS and Case Studies
18 Architecture of Selected APS . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Herbert Meyr, Jens Rohde, Michael Wagner, Ulrich Wetterauer
18.1 i2 Technologies – i2 Six.One . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18.2 Peoplesoft – EnterpriseOneT M Supply Chain Planning . . . . . . . . . .
18.3 SAP – APO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

341

19 SCM in a Pharmaceutical Company . . . . . . . . . . . . . . . . . . . . . .
Frank Altrichter, Tanguy Caillet
19.1 Case Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19.2 Objectives of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19.3 Planning Processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19.4 Results and Lessons Learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

355

20 Food and Beverages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Michael Wagner, Herbert Meyr

20.1 Case Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20.2 Aim of the Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20.3 Model Building in Peoplesoft Strategic Network Optimization . . .
20.4 Implementing the Master Planning model . . . . . . . . . . . . . . . . . . . . .
20.5 Results and Lessons Learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

371

21 Computer Assembly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Christoph Kilger, Lorenz Schneeweiss
21.1 Description of the Computer Assembly Case . . . . . . . . . . . . . . . . . . .
21.2 Scope and Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.3 Planning Processes in Detail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21.4 Summary and Lessons Learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

389

22 Demand Planning of Styrene Plastics . . . . . . . . . . . . . . . . . . . .
Boris Reuter
22.1 Description of the Supply Chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22.2 The Architecture of the Planning System . . . . . . . . . . . . . . . . . . . . .
22.3 Model Building with SAP APO Demand Planning . . . . . . . . . . . . .
22.4 The Demand Planning Process of the Styrene Plastics Division . .

407

341
346

350
353

355
358
361
369

371
377
377
381
387
388

389
393
395
405
406

407
408
410
415


Contents

XV

22.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 420
23 Semiconductor Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lorenz Schneeweiss, Ulrich Wetterauer
23.1 Case Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.2 Objectives of Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.3 Model Building with the i2 Factory Planner . . . . . . . . . . . . . . . . . . .
23.4 Lessons Learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

421

24 Scheduling of Synthetic Granulate . . . . . . . . . . . . . . . . . . . . . . .
Marco Richter, Volker Stockrahm
24.1 Case Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.2 Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.3 Modelling the Production Process in APO PP/DS . . . . . . . . . . . . .
24.4 Planning Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24.5 Results and Lessons Learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

435

421
425
427
434

435
437
437

448
449

Part V. Conclusions and Outlook
25 Conclusions and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 455
Hartmut Stadtler
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 458
Part VI. Supplement
26 Forecast Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Herbert Meyr
26.1 Forecasting for Seasonality and Trend . . . . . . . . . . . . . . . . . . . . . . . .
26.2 Initialization of Trend and Seasonal Coefficients . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

461

27 Linear and Mixed Integer Programming . . . . . . . . . . . . . . . . .
Hartmut Stadtler
27.1 Linear Programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27.2 Pure Integer and Mixed Integer Programming . . . . . . . . . . . . . . . . .
27.3 Remarks and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

473

28 Genetic Algorithms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert Klein
28.1 General Idea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.2 Populations and Individuals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28.3 Evaluation and Selection of Individuals . . . . . . . . . . . . . . . . . . . . . . .

28.4 Recombination and Mutation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

485

461
467
471

473
477
481
483

485
486
488
490


XVI

Contents

28.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 491
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 492
29 Constraint Programming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Robert Klein
29.1 Overview and General Idea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.2 Constraint Satisfaction Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.3 Constraint Propagation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29.4 Search Algorithms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.5 Concluding Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

493
493
494
495
497
498
499

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501
About Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 509


Introduction
Hartmut Stadtler
Darmstadt University of Technology, Department of Production & Supply Chain
Management, Hochschulstraße 1, 64289 Darmstadt, Germany

Supply Chain Management – just another shortlived management philosophy? The gains that have been realized when adopting Supply Chain Management (SCM) and Advanced Planning are impressive:
• Hewlett-Packard cut deskjet printer supply costs by 25% with the help of
inventory models analyzing the effect of different locations of inventories
within its supply chain. This analysis convinced Hewlett-Packard to adopt
a modular design and postponement for its deskjet printers (Lee and
Billington, 1995).
• Campbell Soup reduced retailer inventories on average by 66% while
maintaining or increasing average fill rates by improving forecasts and introducing simple inventory management rules (Cachon and Fisher, 1998).
• IBM applied its Asset Management Tool, consisting of analytical performance optimization and simulation, to its personal systems division, saving material costs and price-protection expenses of more than $750 million

in 1998 (Lin et al., 2000).
• BASF introduced vendor managed inventory with five key customers in
its textile colours division. With the help of an Advanced Planning System it has been possible to raise the fill rate of its customers’ inventory
to almost 100%. Customers profited from eliminating safety stocks while
it allowed BASF to generate less costly transportation and production
schedules (Grupp, 1998).
These impressive gains show the potential of coordinating organizational
units and integrating information flows and planning efforts along a supply
chain.
Which manager can afford not to present such substantial gains in improving competitiveness? Nowadays, these gains cannot be achieved by one
company alone, because companies have attempted to concentrate their business on those activities which they know best – their core competencies. As a
result, all other activities have been outsourced to other firms, when possible.
Consequently, the characteristics and the quality of a product or service sold
to a customer largely depend on several firms involved in its creation. This
brought about new challenges for the integration of legally separated firms
and the coordination of materials, information and financial flows not experienced in this magnitude before. A new managerial philosophy was needed
– Supply Chain Management.


2

1. Overview
2. Analysis

I. Basics

3. Types of SCs
4. Advanced Planning

27. LP & MIP

28. Genetic Algorithms

VI. Supplement

5. Structure of APS

29. Constraint
Programming

6. Strategic Network Planning
7. Demand Planing
procurement

long- term

mid- term

Purchasing
Purchasing
&
Material
Material
Requirements
Requirements
short -term
Planning
Planning

25. Conclusions
& Outlook

V. Conclusions
and Outlook

production

distribution

sales

StrategicNetwork Planning
Strategic

8. Master Planning

Master
Master Planning
Production
Planning
Planning
Scheduling
Scheduling

Distribution
Distribution
Planning
Planning
Transport
Transport
Planning

Planning

Demand
Demand
Planning
Planning
Demand
Demand
Fulfilment
Fulfilment
&ATP
& ATP

II. Concepts
&A
SCM
P

.

9. Demand Fulfilment & ATP
10. Production Planning
& Scheduling
11. Purchasing & MRP
12. Distribution &
Transport Planning

18. Architecture

13. Coordination & Integration

19. Pharmaceuticals

14. Collaborative Planning

20. Food and Beverages
21. Computer Assembly
22. Styrene Plastics
23. Semiconductor
Manufacturing

IV. Actual APS &
Case Studies

15. Definition of an SCM Project

III. Implementing

16. Selection Process
17. Implementation Process

24. Scheduling of
Synthetic Granulate

Fig. 1. Structure of this book

Hartmut Stadtler

26. Forecast Methods

Introduction

3

As with many management philosophies, impressive gains reported from
pilot studies are promised. Often a few principles build the main body of such
a new management philosophy. Since there are usually many more facets involved in managing a company successfully, some neglected factors may give
rise to improvements achievable by the next management philosophy highlighted a few years later. Still, each management philosophy usually contains
some building blocks that are advantageous and will survive over a longer
period of time.
No great phantasies are needed to forecast that SCM will not be the ultimate managerial philosophy, although in our opinion it has many more facets
than most of its predecessors. Since there are several facets to look at, SCM
is difficult to grasp as a whole. While being aware of the broad area covered
by SCM, this book will concentrate on recent developments in coordinating
materials and information flows by means of the latest software products –
called Advanced Planning Systems (APS). During the past ten years progress
in information technology – like powerful database management systems –
communication means – like electronic data interchange (EDI) via the Internet – as well as solution methods to solve large quantitative models – e. g. by
mathematical programming – opened up new perspectives for planning and
controlling flows along a supply chain. A customer’s order, demand forecasts
or market trends may be exploded into required activities and sent to all
parties in the supply chain immediately. Accurate schedules are generated,
which secure order fulfilment in time. Roughly speaking this is the task of
APS. Unlike traditional Enterprise Resource Planning (ERP) these new systems try to find feasible, (near) optimal plans across the supply chain as a
whole, while potential bottlenecks are considered explicitly.
It is our intention to provide insights into the principles and concepts
underlying APS. In order to better understand and remember the structure
of our book a mind-map has been created (Fig. 1). Part I of the book introduces the basics of SCM starting with a definition of SCM and its building
blocks. The origins of SCM can be traced back into the fifties, when Forrester

(1958) studied the dynamics of industrial production-distribution systems
(see Chap. 1).
As a first step of introducing APS in industry it seems wise to document
and analyze the current state of the supply chain and its elements (Chap. 2).
A suitable tool for analyzing a supply chain are (key) performance indicators.
They can provide valuable insights and guidance for setting targets for an
SCM project. A well-known tool for analyzing a supply chain – the SCORmodel – provides a very valuable graphical representation with different levels
of aggregation supplemented by performance indicators. Often, inventories at
different locations in the supply chain are in the centre of interest of management. Hence, we discuss potential reasons for the existence of inventories.
Although APS are designed to be applicable for a number of industries,
decision problems may vary widely. A typology of supply chains (Chap. 3)


4

Hartmut Stadtler

will help the reader to identify which characteristics of a specific APS match
the requirements of the supply chain at hand, and which do not, thereby
guiding the selection process of an APS. Examples from industry illustrate
different types of supply chains. Chapter 4 introduces the basics of advanced
planning by applying the principles of hierarchical planning and explains the
planning tasks along the supply chain by means of the supply chain planning
(SCP) matrix.
Part II describes the general structure of APS (Chap. 5) and its modules in greater detail following the SCP matrix. Part II, however, will not
only concentrate on functions and modelling features currently available in
APS, but it will also describe ideas we regard to be good Advanced Planning
and thus should be included in future releases of an APS. The presentation
of concepts underlying these modules starts with strategic network planning
(Chap. 6) followed by operational planning tasks for procurement, production and distribution. The quality of decision support provided by an APS

largely depends on an adequate model of the elements of a supply chain, the
algorithms used for its solution and the coordination of modules involved.
Chapters 7 to 12 describe the many modelling features and mention solution procedures available to tackle different planning tasks without explicitly
referring to specific APS. Although several modules have been identified, software vendors claim to offer a coherent, integrated software suite with close
links to ERP systems. These linkages are the topic of Chap. 13.
In case a supply chain consists of several legally separated organizations,
planning functions (usually) will not be controlled by a single, centralized
APS. Instead, each partner will perform its own decentralized planning functions supported by an individual APS. Here, collaborative planning comes
into play (Chap. 14) in order to agree on the exchange of data and the planning process. The overall objective is that the supply chain works in the most
effective manner, i.e. ideally without interrupting the flow of information, materials and financial funds.
Part III is devoted to the implementation of an APS within a firm or
supply chain. Obviously this requires a lot more than modelling. Often a
consultancy company is hired to provide the expertise and manpower needed
to introduce new, more efficient processes, to customize the APS and to
train personnel. Hence, we describe the tasks necessary for introducing an
SCM project (Chap. 15), the selection process of an APS (Chap. 16) and its
implementation in industry (Chap. 17).
Recalling the general structure of APS (Chap. 5), Part IV now considers specific APS offered by i2 Technologies, Peoplesoft and SAP. It starts by
pointing out differences in architecture (Chap. 18), followed by several case
studies. Here we demonstrate how concepts and ideas outlined in the preceding chapters are applied to industrial practice with the help of actual APS.
The first three case studies (Chaps. 19 to 21) are intended to provide a general
idea of the planning problems facing specific industries and their resolution


Introduction

5

by making use of an APS. The following three case studies concern specific
modules of an APS. These comprise demand planning (Chap. 22), production

planning (Chap. 23) and scheduling (Chap. 24). Here, special emphasis has
been given to show how to model supply chain elements.
Part V sums up our experiences and gives an outlook of potential future
developments.
Finally, a supplement (Part VI) provides a brief introduction to major
algorithms used to solve the models mentioned in Parts II and IV and should
enable the reader to better understand how APS work and where their limits
are. Especially, forecast methods relate to Demand Planning (Chap. 26). Linear and mixed integer programming models are the solution methods needed
if optimal master plans or distribution plans are looked for (Chap. 27). Last
but not least, constraint programming and genetic algorithms constitute alternative solution engines within the scheduling module, where suitable sequences of jobs (orders) on multiple resources have to be generated (Chaps. 28
and 29).

References
Cachon, G.; Fisher, M. (1998) Campbell Soup’s continuous replenishment program:
Evaluation and enhanced inventory decision rules, in: Lee, H. L.; Ng, S. M.
(Eds.) Global supply chain and technology management, POMS series in technology and operations management, Vol. 1, Miami, Florida, 130–140
Forrester, J. W. (1958) Industrial dynamics: A major breakthrough for decision makers, Harvard Business Review, Vol. 36, No. 4, 37–66
Grupp, K. (1998) Mit Supply Chain Management globale Transparenz in der Distribution, PPS Management, Vol. 3, No. 2, 50–52
Lee, H. L.; Billington, C. (1995) The evolution of supply-chain-integration models
in practice at Hewlett-Packard , Interfaces, Vol. 25, No. 5, 42–63
Lin, G.; Ettl, M.; Buckley, S.; Yao, D. D.; Naccarato, B. L.; Allan, R.; Kim, K.;
Koenig, L. (2000) Extended-enterprise supply-chain management at IBM personal systems group and other divisions, Interfaces, Vol. 30, No. 1, 7–25


Part I

Basics of Supply Chain Management


1

Supply Chain Management – An Overview

Hartmut Stadtler
Darmstadt University of Technology, Department of Production & Supply Chain
Management, Hochschulstraße 1, 64289 Darmstadt, Germany

What is the essence of Supply Chain Management (SCM)? How does it relate
to Advanced Planning? In which sense are the underlying planning concepts
“advanced”? What are the origins of SCM? These as well as related questions
will be answered in this chapter.

1.1

Definitions

During the nineties several authors tried to put the essence of SCM into a
single definition. Its constituents are
•
•
•
•

the
the
the
the

object of the management philosophy,
target group,

objective(s) and
broad means for achieving these objectives.

The object of SCM obviously is the supply chain which represents a “. . . network of organizations that are involved, through upstream and downstream
linkages, in the different processes and activities that produce value in the
form of products and services in the hands of the ultimate consumer” (Christopher, 1998, p. 15). In a broad sense a supply chain consists of two or more
legally separated organizations, being linked by material, information and
financial flows. These organizations may be firms producing parts, components and end products, logistic service providers and even the (ultimate)
customer himself. So, the above definition of a supply chain also incorporates
the target group – the ultimate customer.
As Fig. 1.1 shows, a network usually will not only focus on flows within
a (single) chain, but will have to deal with divergent and convergent flows
within a complex network resulting from many different customer orders to
be handled in parallel. In order to ease complexity, a given organization may
concentrate only on a portion of the overall supply chain. As an example,
looking in the downstream direction the view of an organization may be
limited by the customers of its customers while it ends with the suppliers of
its suppliers in the upstream direction.
In a narrow sense the term supply chain is also applied to a large company
with several sites often located in different countries. Coordinating material,
information and financial flows for such a multinational company in an efficient manner is still a formidable task. Decision-making, however, should


10

Hartmut Stadtler

Semi-finished
products manufacturing

Suppliers

Final
assembly

Factory
warehouse

Manufacturing firm
Information flow

Material flow

Distribution
(third party
logistics)

(ultimate)
Customers

Fig. 1.1. Supply chain (example)

be easier, since these sites are part of one large organization with a single
top management level. A supply chain in the broad sense is also called an
inter-organizational supply chain, while the term intra-organizational relates
to a supply chain in the narrow sense. Irrespective of this distinction, a close
cooperation between the different functional units like marketing, production, procurement, logistics and finance is mandatory – a prerequisite being
no matter of course in today’s firms.
The objective governing all endeavours within a supply chain is seen as
increasing competitiveness. This is because no single organizational unit now

is solely responsible for the competitiveness of its products and services in
the eyes of the ultimate customer, but the supply chain as a whole. Hence,
competition has shifted from single companies to supply chains. Obviously, to
convince an individual company to become a part of a supply chain requires a
win-win situation for each participant in the long run, while this may not be
the case for all entities in the short run. One generally accepted impediment
for improving competitiveness is to provide superior customer service which
will be discussed in greater detail below (Sect. 1.2). Alternatively, a firm may
increase its competitiveness by fulfilling a prespecified, generally accepted
customer service level at minimum costs.
There are two broad means for improving the competitiveness of a supply
chain. One is a closer integration of the organizations involved and the other


1

Supply Chain Management – An Overview

11

is a better coordination of material, information and financial flows (Lee and
Ng, 1998, p. 1). Overcoming organizational barriers, aligning strategies and
speeding up flows along the supply chain are common subjects in this respect.
We are now able to define the term Supply Chain Management as the
task of integrating organizational units along a supply chain and coordinating
material, information and financial flows in order to fulfil (ultimate) customer
demands with the aim of improving the competitiveness of a supply chain as
a whole.

1.2

Building Blocks

The House of SCM (see Fig. 1.2) illustrates the many facets of SCM. The
roof stands for the ultimate goal of SCM – competitiveness – customer service indicates the means. Competitiveness can be improved in many ways,
e. g. by reducing costs, increasing flexibility with respect to changes in customer demands or by providing a superior quality of products and services.
The roof rests on two pillars representing the two main components of
SCM, namely the integration of a network of organizations and the coordination of information, material and financial flows. The figure also shows that
there are many disciplines that formed the foundations of SCM.
The two main components which incur some degree of novelty, will now
be broken down into their building blocks. Firstly, forming a supply chain
requires the choice of suitable partners for a mid-term partnership. Secondly, becoming an effective and successful network organization, consisting
of legally separated organizations calls for actually practicing inter-organizational collaboration. Thirdly, for an inter-organizational supply chain, new
concepts of leadership aligning strategies of the partners involved are important.
The coordination of flows along the supply chain can be executed efficiently by utilizing the latest developments in information and communication technology. These allow processes formerly executed manually to be
automated. Above all, activities at the interface of two entities can be scrutinized, while duplicate activities (like keying in the data of a consignment) can
be reduced to a single activity. Process orientation thus often incorporates a
redesign followed by a standardization of the new process.
For executing customer orders, the availability of materials, personnel,
machinery and tools has to be planned. Although production and distribution planning as well as purchasing have been in use for several decades,
these mostly have been isolated and limited in scope. Coordinating plans
over several sites and several legally separated organizations represents a
new challenge that is taken up by Advanced Planning (Systems).
Subsequently, we will describe the house of SCM in greater detail, starting
with the roof, followed by its two pillars and ending with some references to
its foundations.